Why delaying gratification is smart

Sep 09, 2008

If you had a choice between receiving $1,000 right now or $4,000 ten years from now, which would you pick? Psychologists use the term "delay discounting" to describe our inability to resist the temptation of a smaller immediate reward in lieu of receiving a larger reward at a later date. Discounting future rewards too much is a form of impulsivity, and an important way in which we can neglect to exert self-control.

Previous research suggests that higher intelligence is related to better self-control, but the reasons for this link are unknown. Psychologists Noah A. Shamosh and Jeremy R. Gray, from Yale University, and their colleagues, were interested in testing the idea that certain brain regions supporting short-term memory play a critical role in this relationship.

"It has been known for some time that intelligence and self-control are related, but we didn't know why. Our study implicates the function of a specific brain structure, the anterior prefrontal cortex, which is one of the last brain structures to fully mature," said Dr. Shamosh.

In this study, 103 healthy adults were presented with a delay discounting task to assess self-control: a series of hypothetical choices where they had to choose between two financial rewards, a smaller one which they would receive immediately or another, larger reward which would be received at a later time. The participants then underwent a variety of tests of intelligence and short term memory. On another day, subjects' brain activity was measured using fMRI, while they performed additional short-term memory tasks.

The results show that participants with the greatest activation in the brain region known as the anterior prefrontal cortex also scored the highest on intelligence tests and exhibited the best self-control during the financial reward test. This was the only brain region to show this relation. The results appear in the September issue of Psychological Science, a journal of the Association for Psychological Science.

Previous studies have shown that the anterior prefrontal cortex plays a role in integrating a variety of information. The authors suggest that greater activity in the anterior prefrontal cortex helps people not only to manage complex problems, resulting in higher intelligence, but also aids in dealing with simultaneous goals, leading to better self-control.

Knowledge of the neural mechanisms underlying the relationship between short term memory, intelligence and delay discounting may result in improved techniques of increasing self-control. This is particularly applicable in regulating behavior related to gambling and substance abuse. "Understanding the factors that support better self-control is relevant to a host of important behaviors, ranging from saving for retirement to maintaining physical and mental health," the authors conclude.

Source: Association for Psychological Science

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User comments : 17

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x646d63
5 / 5 (2) Sep 09, 2008
The example provided would only be useful if the $4,000 ten years from now is inflation-adjusted. As the American economy currently sits, I'd take the $1000 today and convert it to a different currency immediately, as $4,000 in ten years may not be worth nearly as much.
drel
4.7 / 5 (3) Sep 09, 2008
10 years from now for the average person in this study might as well be 10,000 years. For too many in the U.S. it is all spend, borrow repeat. Savings to them is a foreign concept.

The choice to "take it now" is all about either instant gratification or taking control. I agree with x646d63, I would take the 1,000 and invest it, where as I think most of my "fellow Americans" would buy new chrome rims or the latest wide screen TV.

bmcghie
not rated yet Sep 09, 2008
I'll take the $1000 in my canadian dollars, please. And then I'll use it to keep feeding one poor starving 4th year biology student. (That's me, by the way)
barakn
1 / 5 (2) Sep 09, 2008
An APY of 15% would be sufficient to increase $1000 to $4000 over 10 years not taking into consideration taxes. If you are ethical enough to report the income than you would also lower your taxes by spreading the income over 10 years rather taking it as a lump sum, so the necessary APY might be even smaller. Talk to your accountant.
barakn
not rated yet Sep 09, 2008
Other factors would also need to be incorporated into the calculation, including the chances of you dying, becoming incapacitated, or incarcerated in the next 10 years, the chances that the organization offering the money will lose track of your location over those 10 years, that it will run out of money, that it will forget that it owes you, that it will simply refuse to hand over the money, etc.. In short, the idea that the $4000 is automatically a better choice results from naive simplifications and oversights.
Graeme
not rated yet Sep 09, 2008
Waiting for the $4000 dollars is pretty chancy, there is a good chance that the donor will change their mind or be unable to honour the promise, you may not be in a position to take the future cash either! Best to take the $1000 now.
bartek
5 / 5 (1) Sep 09, 2008
I hope everyone realizes that we are talking about 14.87% compounded annual growth rate (CAGR) here, which comparatively, over a ten year period is impressive. Even the best fund managers have a hard time getting those types of results. Just check the results of your mutual fund manager over the past ten years.

I propose the following solution, if this is investment is guaranteed, i.e. risk free, than your choice is clear. Just have a look at the treasury yields. If we are not talking about a risk free investment than I would recommend taking the $1,000 now if you think you or the market can beat a 14.87% CAGR during the next ten years.

Hey barakn, in such case why bother with a 401K? If you want you can incorporate those externalities and risks in your discount rate. Even so 14.87% includes a high premium relative to the risk free rate.
bartek
not rated yet Sep 09, 2008
What we really need to know is the risk attached to the future cash flow so we can calculated risk adjusted return or simply compare the required return dictated by the risk versus the CAGR on the investment.
superhuman
not rated yet Sep 10, 2008
Risk is one thing, present financial condition might be much more important as pointed out by bmcghie. Starving is NOT smart.
Velanarris
2.3 / 5 (3) Sep 10, 2008
I'd take the 1k right now. In 10 years the 4k will be worth less than the 1k is right now. That's simple currency and inflation modeling regardless of interest gain.

And Drel, saving has never been a good idea, the only investment that will never really go down is real estate, because they can't really "make" more land at this point in time.
marjon
not rated yet Sep 10, 2008
""It has been known for some time that intelligence and self-control are related, but we didn't know why."

Maybe people who use religion to help them with self-control aren't so dumb after all?
drel
not rated yet Sep 10, 2008
And Drel, saving has never been a good idea, the only investment that will never really go down is real estate, because they can't really "make" more land at this point in time.

True, I'm not talking about burying it in a Mason jar out back, but rather investing. Quality antiques are also not being made anymore either (not counting counterfeits) and I believe better that "paper". I would rather have a "Monet" than money or a stock certificate. IMO the Monet would always look better hanging on my wall.
Modernmystic
3 / 5 (2) Sep 10, 2008
What if you're dead in ten years? What good is the 4000 gonna do you then?
Velanarris
not rated yet Sep 10, 2008
""It has been known for some time that intelligence and self-control are related, but we didn't know why."

Maybe people who use religion to help them with self-control aren't so dumb after all?


Nah, that's someone "smarter" thinking for them. If you give up your self control to another power, which happens to be better at it than you, you can't attribute your "self"-control to that group, person, body, etc.
Modernmystic
not rated yet Sep 10, 2008
Nah, that's someone "smarter" thinking for them. If you give up your self control to another power, which happens to be better at it than you, you can't attribute your "self"-control to that group, person, body, etc.


IOW something very like the government, or the scientific community then.
General_Haberdashery
5 / 5 (1) Sep 14, 2008
A better question would be, "How many months would you have to wait before you decided to instead take the $1000?"

Any reasonably smart person can turn $1000 into $4000 over ten years.

EDIT: Based on this survey maybe you could find a supposedly stupid person and say, I'll give you a thousand dollars but you need to pay me 10 dollars a month for the next three years four months. It works well for credit card company's.
General_Haberdashery
not rated yet Sep 14, 2008
I posted that at 1:00 AM and in the shower this morning went, "Wait... ten dollars...? Dumbass."

No one in their right mind is going to pay a hundred dollars a month.

Get in the bail bond business maybe?

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